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On March 5, the U.S. District Court for the District of South Carolina affirmed the recommendation of a Magistrate Judge and denied the motion of a law firm, one of its partners, and others’ (collectively, “defendants”) to dismiss an action alleging that the defendants violated the Federal Anti-Assignment Act (FAAA) and the Racketeer Influenced and Corrupt Organization Act (RICO). These alleged violations were based on the advance purchase of future military pension and disability benefits in exchange for current lump sum payments. According to the report of the Magistrate Judge, five military veterans (collectively, “plaintiffs”) alleged that the defendants operated a coordinated scheme to generate leads from veterans seeking money, and connected veterans to brokers and purchasers in order for the veteran to sell future pension and disability payments for a lump sum wire transfer. The plaintiffs also alleged the operators required the veterans to execute an insurance policy or structured asset agreement to ensure the loan is fully repaid upon the veteran’s death. The Magistrate Judge recommended the motions be denied, concluding that the plaintiffs sufficiently pled the details of the alleged scheme and that the defendants violated the FAAA by inducing veterans to enter into contracts to sell their retirement or disability benefits in advance of the date they are due and payable. Moreover, the Magistrate Judge found that the plaintiffs sufficiently alleged the individual plaintiffs violated RICO by engaging in a criminal enterprise that “coordinated various corporations and websites to buy the plaintiffs’ and other veterans’ benefits and funnel the proceeds through [a defendant]’s account.” Upon review of the report, the district court found “no clear error” by the Magistrate Judge, agreed with the recommendations, and denied the motions to dismiss.
As previously covered by InfoBytes, one of the individual defendants was recently fined $1 in civil money penalties by the CFPB for allegedly violating the Consumer Financial Protection Act by operating a website that connected veterans with companies offering high-interest loans in exchange for the assignment of some or all of their military pension payments.
On March 5, the FTC announced the U.S. District Court for the District of Arizona entered three orders on February 26, settling the FTC’s case against the operators of a telemarketing grant scheme. As previously covered by InfoBytes, the FTC’s complaint alleged the operators charged consumers upfront fees ranging from $295 to $4,995 and promised to obtain $10,000 or more in government, corporate, or private grants that could help the consumers pay off personal expenses such as medical bills; however, “most, if not all,” of the consumers ultimately received nothing in return. The three stipulated orders (available here, here, and here) impose a suspended $3 million judgment, (based on the operators’ inability to pay) and: (i) require the operators to surrender significant assets; (ii) ban the operators from telemarketing or making misrepresentations or unsubstantiated claims about any product or services; and (iii) prohibit the operators from making false or misleading statements to financial entities, including misrepresenting businesses to payment processors and banks.
On March 6, the DOJ announced it reached a proposed $80,000 settlement with a California-based indirect auto lending company for allegedly repossessing servicemembers’ vehicles in violation of the Servicemembers Civil Relief Act (SCRA). As previously covered by InfoBytes, the DOJ filed a lawsuit against the company in March 2018, alleging that an investigation revealed the company failed to have policies or practices in place to verify borrowers’ military status before repossessing vehicles. As such, the DOJ argued that the defendant may have repossessed vehicles of other servicemembers without obtaining the necessary court orders or verifying military status. The investigation was triggered after an Army Private submitted a complaint about the company to the DOJ in 2016. The proposed consent order would require the company to pay a $50,000 civil penalty and issue $30,000 in compensation to a different Army Specialist, whose credit, according to the DOJ, was severely damaged as a result of a repossession by the company. In addition, the company would be required to develop policies and procedures to ensure compliance with the SCRA in the future. The consent order has not yet been approved by the court.
On March 5, the FTC released proposed amendments to two rules that protect the privacy and security of customer data held by financial institutions. The agency seeks comments on proposed changes to the Safeguards Rule and the Privacy Rule under the Gramm-Leach-Bliley Act. The Safeguards Rule requires financial institutions to develop, implement, and maintain comprehensive information security programs, whereas the Privacy Rule requires financial institutions to notify customers about information-sharing practices, as well as enable customers to opt out of sharing their information with certain third parties. The FTC’s proposed amendments to the Safeguards Rule would, among other things, add more detailed requirements for financial institutions, including mandatory encryption of customer data and the use of multi-factor authentication to prevent unauthorized access to customer information. The proposed amendments to the Privacy Rule would change the rule to account for statutory changes in the Dodd-Frank Act, which gave the majority of the FTC’s rulemaking authority for the Privacy Rule to the CFPB with the exception of certain motor vehicle dealers. The agency plans to remove examples of financial institutions that do not apply to motor vehicle dealers, as well as clarify when annual customer privacy notices must be provided. In addition, the FTC proposes to expand the definition of “financial institution” in both rules to include “finders,” which include persons or entities that charge a fee to introduce consumers to a lender.
On March 3, the 21st annual National Consumer Protection Week (NCPW) began. According to the FTC announcement, NCPW will run from March 3 through March 9 and aims to help consumers understand their rights while giving them access to free educational materials. The FTC, together with its federal, state and local partners, consumer groups, and other national advocacy organizations intend to provide advice on scams, identity theft, and other fraudulent business practices. A schedule of three specific social media events hosted by the FTC is provided in the announcement.
On February 12, the CFPB released its annual list of rural counties and rural or underserved counties for lenders to use when determining qualified exemptions to certain TILA regulatory requirements. In connection with the release of the lists, the Bureau also directed lenders to use its web-based Rural or Underserved Areas Tool to assess whether a rural or underserved area qualifies for a safe harbor under TILA’s Regulation Z.
D.C. act provides eviction and foreclosure relief to federal employees and contractors impacted by shutdown
On February 6, the Mayor of the District of Columbia signed Act 23-5 (B23-0080) to protect federal workers, contractors, and employees of the District of Columbia Courts from eviction and foreclosure during federal government shutdowns. Among other things, the D.C. Superior Court will have the ability to grant motions to stay foreclosure and eviction proceedings for eligible impacted workers or their household members. The temporary stay would run until the earlier of “(i) 30 days after the effective date of an appropriations act or continuing resolution that funds a federal worker’s government agency; or (ii) 90 days after the date of the federal worker’s first unpaid payday” for government employees, with analogous terms for contractors. The act is effective immediately and expires on May 7. Notably, Act 23-9, signed by the Mayor on February 26, extends the expiration date for relief measures to October 9.
On February 11, the OCC released a statement from Comptroller of the Currency Joseph Otting supporting the CFPB’s proposed rule rescinding certain requirements relating to underwriting standards for short-term small-dollar loans. (Covered by InfoBytes here.) Calling the proposal “important and courageous,” Otting praised the Bureau, noting that it was “[t]he shrinking supply and steady demand” that “drove up prices and promoted much less favorable terms.” He continued to state that a framework of rules that allows responsible lenders to compete in the market will make the market “work better for everyone.”
As previously covered by InfoBytes, in May 2018, the OCC released a Bulletin encouraging banks to meet the credit needs of consumers by offering short-term, small-dollar installment loans subject to the OCC’s core lending principles.
On January 31, the U.S. District Court for the Southern District of New York granted final approval and class certification to a $22 million settlement resolving class action allegations that a national bank improperly charged overdraft fees on “one-time, non-recurring” transactions made with a ride-sharing company. The court found that the bank mischaracterized these one-time charges as recurring transactions, which allowed the bank to charge overdraft fees of $35. Prior to the court’s approval of the settlement, 12 state Attorneys General sent a letter to the court arguing that the agreement’s release of liability to the ride-sharing company was inequitable. The court found, however, that the release “does not compromise the fairness, reasonableness, and adequacy of the settlement,” where, among other things, plaintiffs’ counsel investigated the viability of claims against the ride-sharing company and concluded that litigation against the company could present problems for the proposed class and for individual recovery. The $22 million settlement constitutes 80 percent of all revenues charged by the bank as a result of the overdraft fees. The court also approved $5.5 million in attorneys’ fees and $50,000 in costs.
On February 1, the FTC announced that the U.S. Bankruptcy Court for the Southern District of Florida ruled that the operator of a computer-financing scheme cannot use his bankruptcy to discharge a $13.4 million judgment entered in 2016 for violating a 2008 FTC order. The FTC alleged that the defendant and his affiliated companies collected more than $14 million from consumers based on promises that they would finance the purchase of new computers but failed to actually deliver the computers. The court determined that the contempt judgment issued in 2016 could not be discharged because it resulted from the defendant’s fraudulent conduct “based on both misrepresentation and concealment.” In a press release describing the ruling, the FTC stated that the defendant’s attempt to shield himself from complying with the order by filing for bankruptcy was an attempt to “avoid justice.”
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- Jonice Gray Tucker to to discuss "DC policy: Everything but the kitchen sink" at CBA Live
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- Daniel P. Stipano to discuss "Lessons learned from ABLV and other major cases involving inadequate compliance oversight" at the ACAMS International AML & Financial Crime Conference
- Jon David D. Langlois to discuss "Transaction management-issues surrounding purchase & sale agreements, post acquisition integration & trailing docs" at the Investment Management Network Residential Mortgage Servicing Rights Forum
- Daniel P. Stipano to discuss "A year in the life of the CDD final rule: A first anniversary assessment" at the ACAMS International AML & Financial Crime Conference
- Moorari K. Shah to discuss "State regulatory and disclosures" at the Equipment Leasing and Finance Association Legal Forum
- Daniel P. Stipano to discuss "The state of the BSA 2019: What’s working, what’s not, and how to improve it" at the West Coast Anti Money-Laundering Forum
- Hank Asbill to discuss "Creative character evidence in criminal and civil trials" at the Litigation Counsel of America Spring Conference & Celebration of Fellows
- Brandy A. Hood to discuss "Flood NFIP in the age of extreme weather events" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "UDAAP compliance" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "State examination/enforcement trends" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Benjamin K. Olson to discuss "LO compensation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "Major state law developments" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "Leveraging big data responsibly" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Hank Asbill to discuss "Pay no attention to the man behind the curtain: Addressing prosecutions driven by hidden actors" at the National Association of Criminal Defense Lawyers West Coast White Collar Conference
- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
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